The Assault on Gold

by PAUL CRAIG ROBERTS

For Americans, financial and economic Armageddon might be close at hand. The evidence for this conclusion is the concerted effort by the Federal Reserve and its dependent financial institutions to scare people away from gold and silver by driving down their prices.

When gold prices hit $1,917.50 an ounce on August 23, 2011, a gain of more than $500 an ounce in less than 8 months, capping a rise over a decade from $272 at the end of December 2000, the Federal Reserve panicked.  With the US dollar losing value so rapidly compared to the world standard for money, the Federal Reserve’s policy of printing $1 trillion annually in order to support the impaired balance sheets of banks and to finance the federal deficit was placed in danger. Who could believe the dollar’s exchange rate in relation to other currencies when the dollar was collapsing in value in relation to gold and silver.

The Federal Reserve realized that its massive purchase of bonds in order to keep their prices high (and thus interest rates low) was threatened by the dollar’s rapid loss of value in terms of gold and silver. The Federal Reserve was concerned that large holders of US dollars, such as the central banks of China and Japan and the OPEC sovereign investment funds, might join the flight of individual investors away from the US dollar, thus ending in the fall of the dollar’s foreign exchange value and thus collapse in US bond and stock prices.

Intelligent people could see that the US government could not afford the long and numerous wars that the neoconservatives were engineering or the loss of tax base and consumer income from offshoring millions of US middle class jobs for the sake of executive bonuses and shareholder capital gains.  They could see what was in the cards, and began exiting the dollar for gold and silver.

Central banks are slower to act. Saudi Arabia and the oil emirates are dependent on US protection and do not want to anger their protector. Japan is a puppet state that is careful in its relationship with its master. China wanted to hold on to the American consumer market for as long as that market existed. It was individuals who began the exit from the US dollar.

When gold topped $1,900, Washington put out the story that gold was a bubble. The presstitute media fell in line with Washington’s propaganda. “Gold looking a bit bubbly” declared CNN Money on August 23, 2011.

The Federal Reserve used its dependent “banks too big to fail” to short the precious metals markets. By selling naked shorts in the paper bullion market against the rising demand for physical possession, the Federal Reserve was able to drive the price of gold down to $1,750 and keep it more or less capped there until recently, when a concerted effort on April 2-3, 2013, drove gold down to $1,557 and silver, which had approached $50 per ounce in 2011, down to $27.

The Federal Reserve began its April Fool’s assault on gold by sending the word to brokerage houses, which quickly went out to clients, that hedge funds and other large investors were going to unload their gold positions and that clients should get out of the precious metal market prior to these sales. As this inside information was the government’s own strategy, individuals cannot be prosecuted for acting on it. By this operation, the Federal Reserve, a totally corrupt entity, was able to combine individual flight with institutional flight. Bullion prices took a big hit, and bullishness departed from the gold and silver markets. The flow of dollars into bullion, which threatened to become a torrent, was stopped.

For now it seems that the Fed has succeeded in creating wariness among Americans about the virtues of gold and silver, and thus the Federal Reserve has extended the time that it can print money to keep the house of cards standing. This time could be short or it could last a couple of years.

However, for the Russians and Chinese, whose central banks have more dollars than they any longer want, and for the 1.3 billion Indians in India, the low dollar price for gold that the Federal Reserve has engineered is an opportunity. They see the opportunity that the Federal Reserve has given them to purchase gold at $350-$400 an ounce less than two years ago as a gift.

The Federal Reserve’s attack on bullion is an act of desperation that, when widely recognized, will doom its policy.

As I have explained previously, the orchestrated move against gold and silver is to protect the exchange value of the US dollar. If bullion were not a threat, the government would not be attacking it.

The Federal Reserve is creating $1 trillion new dollars per year, but the world is moving away from the use of the dollar for international payments and, thus, as reserve currency. The result is an increase in supply and a decrease in demand. This means a falling exchange value of the dollar, domestic inflation from rising import prices, and a rising interest rate and collapsing bond, stock and real estate markets.

The Federal Reserve’s orchestration against bullion cannot ultimately succeed. It is designed to gain time for the Federal Reserve to be able to continue financing the federal budget deficit by printing money and also to keep interest rates low and debt prices high in order to support the banks’ balance sheets.

When the Federal Reserve can no longer print due to dollar decline which printing would make worse, US bank deposits and pensions could be grabbed in order to finance the federal budget deficit for couple of more years.  Anything to stave off the final catastrophe.

The manipulation of the bullion market is illegal, but as government is doing it the law will not be enforced.

By its obvious and concerted attack on gold and silver, the US government could not give any better warning that trouble is approaching. The values of the dollar and of  financial assets denominated in dollars are in doubt.

Those who believe in government and those who believe in deregulation will be proved equally wrong. The United States of America is past its zenith.  As I predicted early in the 21st century, in 20 years the US will be a third world country. We are halfway there.

Paul Craig Roberts is a former Assistant Secretary of the US Treasury and Associate Editor of the Wall Street Journal. His latest book The Failure of Laissez-Faire Capitalism. Roberts’ How the Economy Was Lost is now available from CounterPunch in electronic format.

Paul Craig Roberts is a former Assistant Secretary of the US Treasury and Associate Editor of the Wall Street Journal. Roberts’ How the Economy Was Lost is now available from CounterPunch in electronic format. His latest book is How America Was Lost.

Like What You’ve Read? Support CounterPunch
August 31, 2015
Michael Hudson
Whitewashing the IMF’s Destructive Role in Greece
Conn Hallinan
Europe’s New Barbarians
Lawrence Ware
George Bush (Still) Doesn’t Care About Black People
Joseph Natoli
Plutocracy, Gentrification and Racial Violence
Franklin Spinney
One Presidential Debate You Won’t Hear: Why It is Time to Adopt a Sensible Grand Strategy
Dave Lindorff
What’s Wrong with Police in America
Louis Proyect
Jacobin and “The War on Syria”
Lawrence Wittner
Militarism Run Amok: How Russians and Americans are Preparing Their Children for War
Binoy Kampmark
Tales of Darkness: Europe’s Refugee Woes
Ralph Nader
Lo, the Poor Enlightened Billionaire!
Peter Koenig
Greece: a New Beginning? A New Hope?
Dean Baker
America Needs an “Idiot-Proof” Retirement System
Vijay Prashad
Why the Iran Deal is Essential
Tom Clifford
The Marco Polo Bridge Incident: a History That Continues to Resonate
Peter Belmont
The Salaita Affair: a Scandal That Never Should Have Happened
Weekend Edition
August 28-30, 2015
Randy Blazak
Donald Trump is the New Face of White Supremacy
Jeffrey St. Clair
Long Time Coming, Long Time Gone
Mike Whitney
Looting Made Easy: the $2 Trillion Buyback Binge
Alan Nasser
The Myth of the Middle Class: Have Most Americans Always Been Poor?
Rob Urie
Wall Street and the Cycle of Crises
Andrew Levine
Viva Trump?
Ismael Hossein-Zadeh
Behind the Congressional Disagreements Over the Iran Nuclear Deal
Lawrence Ware – Marcus T. McCullough
I Won’t Say Amen: Three Black Christian Clichés That Must Go
Evan Jones
Zionism in Britain: a Neglected Chronicle
John Wight
Learning About the Migration Crisis From Ancient Rome
Andre Vltchek
Lebanon – What if it Fell?
Charles Pierson
How the US and the WTO Crushed India’s Subsidies for Solar Energy
Robert Fantina
Hillary Clinton, Palestine and the Long View
Ben Burgis
Gore Vidal Was Right: What Best of Enemies Leaves Out
Suzanne Gordon
How Vets May Suffer From McCain’s Latest Captivity
Robert Sandels - Nelson P. Valdés
The Cuban Adjustment Act: the Other Immigration Mess
Uri Avnery
The Molten Three: Israel’s Aborted Strike on Iran
John Stanton
Israel’s JINSA Earns Return on Investment: 190 Americans Admirals and Generals Oppose Iran Deal
Bill Yousman
The Fire This Time: Ta-Nehisi Coates’s “Between the World and Me”
Scott Parkin
Katrina Plus Ten: Climate Justice in Action
Michael Welton
The Conversable World: Finding a Compass in Post-9/11 Times
Brian Cloughley
Don’t be Black in America
Kent Paterson
In Search of the Great New Mexico Chile Pepper in a Post-NAFTA Era
Binoy Kampmark
Live Death on Air: The Killings at WDBJ
Gui Rochat
The Guise of American Democracy
Emma Scully
Vultures Over Puerto Rico: the Financial Implications of Dependency
Chuck Churchill
Is “White Skin Privilege” the Key to Understanding Racism?
Kathleen Wallace
The Id(iots) Emerge
Andrew Stewart
Zionist Hip-Hop: a Critical Look at Matisyahu
Gregg Shotwell
The Fate of the UAW: Study, Aim, Fire